(7 points) Suppose Backbeat BBQ, Dave Grohl's one-man catering company, offers two types of membership plans. Plan A has an entry fee of $20 with a price of $2 per unit. Plan B has an entry fee of $40 with a price of $1 per unit for using the service. Let x be expenditure on all other goods and y be the units of consumption of Backbeat BBQ's services, and suppose you have an income of $100. A. Write down the budget equation that you would have after you paid the entry fee for each of the two plans. B. If your utility function is xy, how much y would you choose in each case? C. Which plan would you prefer? Explain.

ENGR.ECONOMIC ANALYSIS
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Author:NEWNAN
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Chapter1: Making Economics Decisions
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(7 points) Suppose Backbeat BBQ, Dave Grohl's one-man catering company, offers two types of membership
plans. Plan A has an entry fee of $20 with a price of $2 per unit. Plan B has an entry fee of $40 with a price of $1
per unit for using the service. Let x be expenditure on all other goods and y be the units of consumption of
Backbeat BBQ's services, and suppose you have an income of $100.
A. Write down the budget equation that you would have after you paid the entry fee for each of the two plans.
B. If your utility function is xy, how much y would you choose in each case?
C. Which plan would you prefer? Explain.
Transcribed Image Text:(7 points) Suppose Backbeat BBQ, Dave Grohl's one-man catering company, offers two types of membership plans. Plan A has an entry fee of $20 with a price of $2 per unit. Plan B has an entry fee of $40 with a price of $1 per unit for using the service. Let x be expenditure on all other goods and y be the units of consumption of Backbeat BBQ's services, and suppose you have an income of $100. A. Write down the budget equation that you would have after you paid the entry fee for each of the two plans. B. If your utility function is xy, how much y would you choose in each case? C. Which plan would you prefer? Explain.
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